Shares take heart from poll result

Investors are increasing their exposure to equities as the Greek election brings a little more certainty on the global outlook but the rally is not likely to last long.

Monash Investors and
AMP
Capital said a greater allocation to equities was warranted in the lead up to the election amid slightly more optimistic markets.

“We have moderately increased our exposure to the market given the Greek election and the fact that the outlook is less negative than a couple of weeks ago," Monash Investors principal Simon Shields said. “The markets have been very oversold. We are able to buy into markets at very attractive levels now."

“We have gradually been increasing exposure to developed world Australian and emerging market shares," AMP Capital portfolio manager Nader Naeimi said.

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“The actual result provides short-term relief but it doesn’t say that Greece is out of the woods just yet" Mr Naeimi added.

The increased allocation to equities comes as investors globally hold a very high level of cash because of its defensive quality. Yet the Greek election result is not a resolution to the underlying problems in Greece and Europe, and some analysts say it will ensure the next few months are dominated by a torturous process of renegotiation.

“This is not the signal for investors to increase their exposure to equities. Investors should only do this when a realistic solution to the problems is in prospect," Merrill Lynch equity strategist Tim Rocks said.

Credit Suisse analysts believe the Greek election victory of the pro-bailout New Democracy party will take the pressure off European leaders and investment markets but only for a short while, before broader concerns about contagion in the euro zone re-ignite.

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“I think it’s all about Spain because Greece – as things currently stand, and again with the greatest respect for everything that’s going on there and the Greek people – is as I see it slowly transitioning to becoming the ward of the union," Credit Suisse head of European credit strategy William Porter said.

Patersons Securities research and strategy co-ordinator Andrew Quin said the election bought Europe more time to address the broader problems and it was likely the market would track higher. “We are still likely to see the All Ordinaries trade in the range of between 4030 and 4400," he said.

There is also the view that the election result and the G20 leaders summit in Mexico this week, attended by Prime Minister
Julia Gillard
, may provide medium-term relief.

“The risk is that Spain and Italian debt problems become central, stopping a risk rally in its tracks. Spain is set to be in focus this week because it has until Thursday to complete an audit of its banking system, which is expected to show how much they need to recapitalise. There are reports that a clean-up of a number of banks will require between €60 billion and €70 billion.

“What this highlights for me is why it is all about Spain and why we have to have our wits about us on June 21, and subsequent Spain related dates, because those really are key," Mr Porter said.

“With all the greatest respect to Greece, I think it [Spain] is a little more central than this election."

Whether the Greek election result triggers a sustained rally will depend on whether more quantitative easing is announced on the back of the US Federal Open Markets Committee meeting later this week.